After the recent GameStop-fuelled market frenzy there will be more than a few investors nursing paper losses this week.
The Reddit-fuelled surge that saw GameStop’s price rocket, as small traders battled short sellers, was not just a US phenomenon – the UK’s major investing platforms and apps also reported a rush to buy.
Some who jumped in on the trade early will have decided not to hold the line and sold out with handsome profits, but many late to the party will be looking at stakes worth considerably less than they paid for them after its price slumped.
But this isn’t another column about GameStop – you will have read plenty on that already – instead it’s about making investing mistakes and learning from them: specifically mine.
HMV was the last man standing selling music on the High St and its shares had a 10% dividend. ‘Bargain,’ I thought. Nope, they were cheap for a very good reason
That’s because getting something wrong and losing money – whether on paper or realised – is all part of trading and investing.
And we shouldn’t beat ourselves up about it.
A loss, a bad decision, a failure to act, or any other form of mistake can be learned from and chalked up as the cost of investment education.
This is obviously something that’s much easier to do if you haven’t lost a large and meaningful sum of money where the cost is extremely painful to bear.
If you have done that and are struggling to cope, then please speak to someone about it because a problem like that shared becomes much easier to deal with.*
Most of the time, an investing loss may be painful but is easier to deal with when you try to take emotion out of the equation.
And remember that everybody makes them. If you ever here a fund manager or financial adviser claim they don’t make mistakes, take your money away from them. They are lying.
I’m no professional but I’m heavily exposed enough to the investing world to know the pitfalls – and yet over the years I’ve stumbled into plenty of blunders.
Here are a few of them and what I’ve learned.
I bought £500 of HMV shares in early 2010, in my first real foray into investing on my own account. It was the last man standing for selling music on the High Street and owned Waterstones, which I figured held similar status for books.
Yes, downloads were all the rage and Amazon was rampant, but my theory was that people would always still want to browse and buy music and books and HMV could. Its shares were ‘cheap’ and had a 10 per cent yield. Bargain.
I learnt not to overestimate a company based on what I thought should happen but to look at what it was actually doing
The problem was HMV totally stuffed it up. It failed to capitalise, decided to focus on flogging more t-shirts and made a daft move into music venues. The dividend was unsurprisingly cut. I sold out at a 60 per cent loss.
The lessons learnt were not to overestimate a company based on what I thought should happen but to look at what it was actually doing, to beware dividend traps, and to not have a portfolio of just one stock (Artistic licence here, I actually had two stocks.)
With a smaller companies gold fund I was plain greedy and daft, won over my the smart m oney claiming miners had to catch up with the price of gold… the gold price promptly slumped
With HMV I was naïve, with a smaller companies gold fund that seemed a guaranteed money maker I was plain greedy and daft.
Back in 2011, the gold price was soaring and if like me you hadn’t bought gold – as the goldbugs had told you to – you were kicking yourself.
But an idea was being bandied around that there was a way in: although gold was riding high, gold miners’ shares had lagged and that gap was due to close.
There were some very persuasive – but in hindsight not as smart as they thought – people banging on about it as a sure-fire winner.
I invested more than I should have done into something way riskier than I should have: £2,000 into a smaller companies gold fund in September 2011. At the time a sizeable chunk of my savings.
I think the claimed gap might have briefly narrowed slightly, but only because the price of gold fell. And it then widened again, as barring a brief respite in the summer of 2012, gold continued to slide and risky gold mining tiddlers fell even harder.
Every time I opened my account the loss was staring at me, but I held on in a vain hope it would go back up… eventually I sold and instantly felt better
The fund was an absolute dog and I backed it at the worst possible time.
Every time I opened my account the loss was staring at me, but I held on in a vain hope it would go back up.
Eventually, I sold in April 2013 with £662 left – a 67 per cent loss. I instantly felt much better. The lesson learnt was not to be greedy with a supposed sure-fire winner, and once you know you’ve made a bad decision, to cut your losses and move on. I missed out on lots of other opportunities while that money was ebbing away.
Other lessons have included from investing in Quindell, a hugely controversial Aim market star company that had to restate its figures and was investigated for fraud; and Camkids, a Chinese clothing firm that I had backed due to its extremely cheap value status and inclusion in an analyst’s ‘bargain shares’ pick list. It turned out to be cheap for a reason, it was highly iffy and delisted from Aim
By this time, I had learnt why a portfolio approach to share picking is wise and hadn’t put too much into either. Nonetheless, there was a lesson learnt here about backing hot story stocks or share tips where I relied on others for information, especially with Camkids where I couldn’t even confirm the business it claimed to operate existed myself.
Even a proven fund manager can let you down, as Neil Woodford did his investors
Over the years, as my portfolio has grown and larger sums have been involved, I have largely abandoned individual stock-picking and switched to investment trusts and funds where I’m happy to pay professionals a small amount to do the work for me.
Unfortunately, one of those professionals was Neil Woodford: lesson pay attention to fund managers who drift off-piste
Unfortunately, one of those professionals was Neil Woodford: lesson pay attention and ditch fund managers who drift off-piste.
I have a small shares portfolio for fun with a free trading app, but the bulk of my investments are in an Isa, however, the mistake I’ve ended up with here is too many holdings.
Most of the Isa is in about 25 trusts, funds and shares, down to holdings representing about 1.5 per cent of the portfolio, but there is also a long tail of another 30 or so holdings made up of a rag-tag bunch of things I have bought over the years.
I’d like to tidy it up and shift the focus into perhaps ten to fifteen main investments I strongly believe in, but the cost of doing so due to dealing fees would feel exorbitant.
At £8 a throw to sell 40 different holdings and then the same cost again to buy more of the remaining 15, I’d be looking at £440 in dealing fees.
So, I just leave that long tail and try to ignore it, but I’m certain I’m over diversifying to the point where it’s detracting from returns. The lesson here is that while you shouldn’t put all your eggs in one basket, you can also have too many baskets.
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